Share

How Dumb Policies Scare Tech Giants Away From Federal Projects

Bob Ettinger sits at a frozen computer station while attempting to enroll in the nation’s new health insurance system at the Community Health Center in New Britain, Connecticut this past October.

Photo: Jessica Hill/AP

Regardless of political persuasion, few who ever visited or tried to use HealthCare.gov after its launch would argue that the Obamacare website was anything other than a colossal acquisition failure. The site wasn’t openly bid. It was limited to companies “pre-qualified” to do IT business for the feds. But the HealthCare.gov fiasco is only the visible tip of the iceberg that is federal government procurement, and notwithstanding the titanic disaster of that experience, neither Congress nor the administration is trying to fix it.

What has not been emphasized is that the woes of the Obamacare website were far from a one-off, but rather, the standard for federal information technology (IT) procurement.

There have been, and continue to be, a multitude of failed IT acquisitions all meticulously documented by the Government Accountability Office (GAO) and agency inspectors general over the years. Just a few weeks ago, the GAO revealed even more troubling details, issuing a report on 15 large Department of Defense IT projects that found 11 of these projects had cost increases (one with an increase of 2,333 percent); 13 had schedule slippages (one with a six year increase); and only three met system performance goals.

#### William Greenwalt

##### About

[William Greenwalt](http://www.aei.org/greenwalt) is a visiting fellow at the American Enterprise Institute’s Marilyn Ware Center for Security Studies. He previously served as a Deputy Under Secretary of Defense for Industrial Policy.

Despite some initially promising reforms in the early 1990s, the IT acquisition problem has gotten worse and the government continues to trail the private sector in its effective use of new technologies and approaches. Nor is the $500 billion annual federal acquisition problem limited to IT; it transcends major defense systems, research and development, construction, services contracting and commodities. A one-size fits all, rules based, Rube-Goldberg machine ensures that procurement failures are magnified and not left to chance.

>The great mystery in all of this is why the federal government is failing in its IT programs when some of the best IT talent resides in U.S.

The great mystery in all of this is why the federal government is failing in its IT programs when some of the best IT talent resides in U.S. The answer is that Silicon Valley is not involved in government contracting. According to a recent study by the University of Maryland (full disclosure: I was a contributor), many of the most dynamic, innovative, successful, commercial firms will not bid on a standard government contract because of the costs of complying with federal acquisition rules and the limited returns associated with federal procurement. Limited? Think under ten percent for government contractors, versus returns of 20 percent and above in the commercial world.

How did we get to this point? The IT industry owes much of its start to investments made by the Defense Department in the 1950s to miniaturize electronic components to support missile and space programs. That goal was met in the early 1960s and for the next 30 years the Pentagon and computer companies went their separate ways. By the mid-1980s senior defense officials like Hewlett-Packard co-founder David Packard–who had served as U.S. Deputy Secretary of Defense from 1969 to 1971–recognized that commercial IT developments had outstripped what was being produced by the Defense Department. Commercial technology, available to the public, was not making its way into the hands of soldiers, sailors, airman and marines because of the government’s procurement process which was cumbersome, full of outdated requirements and regulations.

Reforms made in the Federal Acquisition Streamlining Act of 1994 and the Clinger Cohen Act of 1996 made it easier to sell to the federal government, and for a while, commercial firms tiptoed into the federal market. However these reforms did not go far enough for many commercial companies. For example, the changes failed to remove the requirements to comply with unique government accounting standards, they failed to protect commercial intellectual property rights, and failed to stop arbitrary government audits. With the passage of time and without senior leadership support, bureaucratic inertia set in and resulted in the re-imposition of old requirements, in the creation of new barriers to doing business with the government, and in a de facto preference for government-unique rather than commercial solutions. So Silicon Valley did what it does best: ignore the government and make a lot of money elsewhere.

Despite, the fact that commercial tech companies had turned away from going after federal contracts, the government was very much in need of help from the corporate IT world – as was seen with HealthCare.gov. The dirty secret, epitomized by, but in no way limited to, the Obamacare website is that the needed improvements were made by bypassing the acquisition system. Individuals working for Silicon Valley firms who would normally refuse to do business with the government were brought in to try and fix the site. It is, however, against the law for these types of experts to work for gratis for the government, so instead, they were made employees of an existing contractor (at the behest of the frantic Obama administration).

>The dirty secret, epitomized by, but in no way limited to, the Obamacare website is that the needed improvements were made by bypassing the acquisition system.

The trouble is that what may appear to be a bold workaround opens the door to a new 21st century spoils system. It sets a horrible precedent for the potential hiring of future politically connected government contractors.

Still, the need to circumvent the acquisition system–as the godfathers of HealthCare.gov did–is becoming increasingly essential if agencies want something innovative, fast, cheap or functional. Congress has responded over the years with a complicated set of one-off waivers, exceptions, and carve-outs to acquisition rules to acquire commercial items or meet wartime needs. Indeed, these authorities might have been used for the Obamacare website to attract a competent and experienced Internet commerce firm, but a combination of anti-market, anti-reform agendas along with a muddled sense of the job resulted in the decision to use the wrong type of company.

Theoretically, one course of reform is to expand on exceptions and allow the thicket of regulations to die on the vine. But as any government official can tell you, regulations never die. Worse yet, companies set up to navigate the existing system have a vested interest in seeing it continue. In other words, the current system encourages collusion between favored contractors and the anti-market fans of the status quo within the ranks of government.

Another reform option proposed by the Defense Business Board– which provides a private sector perspective to the Secretary of Defense–essentially eliminates all acquisition regulations and re-builds a new system from scratch, requiring any new regulation to be justified based on efficiency and effectiveness. This approach has the potential to bring market-oriented flexibility and life back to a moribund acquisition process. It could be expanded to apply to all acquisition laws, rules, regulations and practices.

How would it work? The reality is it has taken over 50 years to create the current procurement problem, and it will take more than one Congressional session to fix it. First, it is necessary to force action. Step one is to enact a legislative sunset of procurement laws and regulations that would require Congress and the Administration to review the existing system in its entirety rather than just add to it. Get rid of the old to make room for the new.

>Silicon Valley did what it does best: ignore the government and make a lot of money elsewhere.

Step two is to construct a new commercial-like acquisition system from the ground up designed to attract bold innovative contractors who can deliver results for the taxpayer and not just comply with government fiat. This results-oriented system should be based on reasonable competition, proven best business practices, and commercial accountability measures that would replace the government-unique barriers that currently restrict competition and prevent some of the most qualified commercial firms from doing business with the government. The true test of any successful acquisition reform will be when Silicon Valley firms are major players in the government marketplace.

The current strained fiscal environment demands that the federal government move away from a process-driven acquisition system if it is ever going to access the cost saving opportunities and innovative solutions that have arisen in the commercial market. A system that only works by going around it is not a workable system and should be dismantled. If there is only one valuable lesson to be learned from the HealthCare.gov debacle, that would be a valuable one indeed.